The Growing Pains of Small Wind: Part II

Author: Elizabeth Rubado , Clean Energy Group| Project: Clean Energy States Alliance

blogphoto-Wind-Mill-Bayonne-NJ2011 was a tough year for small wind incentive programs. Over the past 12 months, California, Oregon, New Jersey, Wisconsin, and Minnesota all experienced some kind of suspension or significant reduction of their incentives for wind turbines. While fluctuating incentives often have been the norm for clean energy, it’s usually because of the “on again, off again” nature of public funding. What was significant about the belt-tightening of several of these programs was that they were tied to technology concerns, not budget.  California and New Jersey suspended their programs in response to illegitimate product claims and reliability concerns, and they aren’t alone in their worries.

Fortunately, the distributed wind industry has begun to respond, and the outlook for 2012 is improving.  Work by organizations such as the Interstate Turbine Advisory Council (ITAC) and the Small Wind Certification Council is helping to ensure that the experiences of California and New Jersey aren’t repeated.

Inexperience and Naiveté

In California, things went awry when DyoCore, a small turbine manufacturer making highly optimistic power and production claims, brought itself to the attention of the California Energy Commission’s (CEC) Emerging Renewable Program. When the majority of customer incentive applications turned out to be tied to this turbine, and the company’s overzealous power claims were resulting in incentives that covered almost 100% of the project costs, the CEC suspended the program to reassess their program requirements.

As I discussed in a previous post, overzealous and unverified production claims are regrettably common in the world of small wind. Product certification and rigorous oversight has become an obvious necessity. However, the California example points to another, more elemental weakness within the small wind industry:  the inexperience and instability of a large number of the small wind businesses now in existence in the U.S.

This situation may best be summed up in DyoCore’s response to the CEC’s complaint. In their statement, DyoCore explained that their mistakes were “committed out of inexperience and naiveté,” and continued on to say that this was “the first and only experience DyoCore has had with wind generation of electricity and its only attempt at manufacturing any product and placing it into commerce.”

While DyoCore’s frankness is laudable, this underscores one of the many problems with a small, emerging market that is flooded with over 650 products. Only a small handful of the businesses have the experience, expertise, production scale or financial backing necessary to be successful.

State and federal clean energy programs are eager to see small wind succeed. After all, wind turbines offer one of the very few non-solar options for homeowners and small businesses to generate their own clean and independent energy. We all want small wind to work, and we want it now. But in the case of small wind, patience and good policy is a virtue. At present, the market is not self-governing enough for public incentive programs to take a hands-off approach. Equipment vetting, siting standards, and other criteria that promote good performance are necessary at this early stage of the technology. With small wind, as with parenting, sometimes you have to provide more guidance and oversight than you’d like.

Solutions through Collaboration

Fortunately, states do not have to go it alone. The Interstate Turbine Advisory Council (ITAC), a recently formed collaboration of state, local, and utility wind incentive providers that is being coordinated by Clean Energy States Alliance. Participating incentive programs are sharing notes and experiences on everything from incentive rates to policies. Together, these clean energy funds are helping one another build and deliver effective wind incentive programs.

Currently, the members of ITAC are building on the foundation of certification that has been laid by organizations like the Small Wind Certification Council to evaluate and identify small and mid-sized wind turbines that meet the performance, reliability, and durability expectations of incentive programs. As a group, these state clean energy programs can be a much more powerful force for influencing the evolution of the small wind market.

Hopefully, the day will soon come when the small wind industry will be able to police itself and deliver a quality, reliable product without heavy public oversight – just as the solar and large scale wind industry has over time. Until then, public clean energy programs will be working together to accelerate the maturation of the small wind industry.

Funding Growth: State Clean Energy Funds Can Help Invent the Future

Authors: Lewis Milford, Clean Energy Group, and Mark Muro, Brookings Institution | Projects: Clean Energy Finance, Clean Energy States Alliance

Brookings report cover jan 2012These are tough times for the dream of clean energy and green jobs. Washington is again gridlocked and failing to act on clean energy economic development. Deficit politics and partisanship are pervasive and meanwhile the imperfect framework of federal financial and tax incentives made available through the 2009 stimulus law and elsewhere is starting to expire.

No wonder so many wise people are so worried about how the next phase of American clean energy industry growth will be financed and the next generation of cleantech technology deployed.

And yet, one source of action lies hidden in plain sight. With federal clean energy activities largely on hold, a new paper we released yesterday as part of the Brookings-Rockefeller Project on State and Metropolitan Innovation argues that U.S. states hold out tremendous promise for the continued design and implementation of smart clean energy finance solutions and economic development.

Specifically, we contend that the nearly two dozen clean energy funds (CEFs) now running in a variety of mostly northern states stand as important actors in American cleantech and offer at least one partial response to the failure of Washington to deliver a sensible clean energy development approach.

To date, over 20 states have created a varied array of these public investment vehicles to invest in clean energy pursuits with revenues often derived from small public-benefit surcharges on electric utility bills. Over the last decade, state CEFs have invested over $2.7 billion in state dollars to support renewable energy markets, counting very conservatively. Meanwhile, they have leveraged another $9.7 billion in additional federal and private sector investment, with the resulting $12 billion flowing to the deployment of over 72,000 projects in the United States ranging from solar installations on homes and businesses to wind turbines in communities to large wind farms, hydrokinetic projects in rivers, and biomass generation plants on farms.

In so doing, the funds stand well positioned — along with state economic development and other officials — to build on a pragmatic success and take up the challenge left by the current federal abdication of a role on clean energy economic development.

Yet here is the rub: For all the good the funds have achieved, project-only financing — as needed as it is — will not be sufficient to drive the growth of large and innovative new companies or to create the broader economic development taxpayers demand from public investments. Also needed will be a greater focus on the deeper-going economic development work that can help spawn whole new industries.

All of which points to the new brand of fund activity that our paper celebrates and calls for more of.

In recent years, increasingly ambitious efforts in a number of states have featured engagement on at least three major fronts somewhat different from the initial fund focus: (1) cleantech innovation support through research, development, and demonstration (RD&D) funding; (2) financial support for early-stage cleantech companies and emerging technologies, including working capital for companies; and (3) industry development support through business incubator programs, regional cluster promotion, manufacturing and export promotion, supply chain analysis and enhancement, and workforce training programs.

These new economic development efforts — on display in California, Massachusetts, New York, and elsewhere — show the next era of state clean energy fund leadership coming into focus. States are now poised to jumpstart a new, creative period of expanded clean energy economic development and industry creation, to complement and build upon individualistic project financing.

Such work could not be more timely at this moment of federal gridlock and market uncertainty.

Along these lines, then, our paper advances several recommendations for moving states more aggressively into this new period of clean energy economic development. We suggest that:

  • States should reorient a significant portion (at least 10 percent of the total portfolio) of state CEF money to clean energy-related economic development
  • States, as they reorient portions of their CEFS to economic development, should better understand the market dynamics in their metropolitan regions. They need to lead by making available quality data on the number of jobs in their regions, the fastest-growing companies, the critical industry clusters, gaps in the supply chain for those industries, their export potential, and a whole range of economic development and market indicators
  • States also should better link their clean energy funds with economic development entities, community development finance institutions (CDFIs), development finance organizations and other stakeholders who could be ideal partners to develop decentralized funding and effective economic development programs

In addition, we think that Washington needs to recognize the strength and utility of the CEFs and actively partner with them:

  • The federal government should consider redirecting a portion of federal funds (for instance, from federal technology support programs administered by the Department of Energy and other programs meant for federal-state cooperation) to provide joint funding of cluster development, export programs, workforce training, and other economic development programs through matching dollars to state funds that now have active economic development programs, and to provide incentives to states without such programs to create them
  • The federal government should create joint technology partnerships with states to advance each state’s targeted clean energy technology industries, by matching federal deployment funding with state funding
  • The states and the federal government, more generally, should look to “decentralize” financing decisions to local entities with street knowledge of their industries, relying on more “development finance” authorities that have financed traditional infrastructure and now could finance new clean energy projects and programs.

In sum, our new paper proposes a much greater focus in U.S. clean energy finance on “bottom up,” decentralized clean initiatives that rely on the states to catalyze regional economic development in regions. Such an approach — which reflects the emergence of an emerging “pragmatic caucus” in U.S. economic life — is currently demanded by federal inaction. However, it might also be the smartest, most durable way to develop the clean energy industries of the future without the partisan rancor and obtuseness that has stymied federal energy policy. State clean energy funds — having funded thousands of individual projects — bring significant knowledge to bear as they focus now on building whole industries. For that reason, the funds’ transition from project development to industry creation should be nurtured and supported.

 

See also: Report co-author Mark Muro was interviewed about this new report on E&ETV. Watch it here.

A New Norquist Pledge? On Clean Energy, Get Your Facts Straight

Author: Lewis Milford, Clean Energy Group 

blogphoto-Solar-Panels-In-The-ParkGrover Norquist has helped to paralyze the federal government on tax policy, and now he wants to bring gridlock to the many job-creating successes of state clean energy policy. His recent article in Politico calling for the end of state renewable energy requirements is a sad and uninformed mix of factual errors, pure ideology, and a tin ear for the politics of the issue.

The most egregious of Norquist’s many falsehoods about the complexities of state energy policy are noted here.

First, Norquist misleadingly implies that renewable portfolio standards (RPSs, i.e., requirements on utilities to include renewable energy in their electricity supply mix) are a stealth strategy imposed by liberal legislators who came into power in 2006 and 2008. In reality, more than two-thirds of state RPS laws were enacted before the 2006 election, through bipartisan efforts of both Republican and Democratic governors and state legislators. These state leaders sought to increase clean energy technologies, industries, and jobs in their states by setting goals for the amount of clean energy power that would be generated. Moreover, when citizens in Colorado and Missouri―one blue and one red state―were asked to vote for RPS laws by ballot, they overwhelmingly said yes. In total, 29 states, plus D.C. and Puerto Rico, have RPS policies in place; another eight states have renewable goals.

So the liberal conspiracy theory is just wrong; rather, this represents a strong, bipartisan effort.

Second, Norquist suggests that RPS laws represent the use of outdated command-and-control “mandates” as if they interfere with some imaginary free market in energy.  The truth is that most states in the US have regulated utility monopolies that build nuclear, coal, oil or renewable power plants. For decades, state regulators have mandated, through legal proceedings, the kind of power plants that get built – whether coal, nuclear, oil, gas or renewable. There is simply no free market in clean energy to speak of in the United States, although there should be. Today, almost all state energy decisions are the result of mandates of one kind or another.

Calling out renewable electricity standards as unfunded mandates might make for good theater in Washington. Saying it in the context of the state energy decision-making framework just shows a complete lack of understanding of how energy policy works in the United States.

Third, Norquist either does not understand or misinforms his readers by saying that renewable portfolio laws dramatically raise electricity rates. This is not a true picture of the actual results. The state of Minnesota recently required all its electric utilities to carefully study and report on the rate impacts of the state’s RPS. Eight of the fourteen utilities concluded that the RPS had had little or no impact on rates. All but one of the other six utilities indicated that the rate impacts were modest—well short of Norquist’s inflated numbers and in line with bringing on any other new investment. More strikingly, New York found that its RPS actually led to a reduction in retail electricity rates. Why? Because renewable energy projects that were built ended up suppressing electricity prices at times when electricity use is at its peak.  Finally, states with RPS laws have strong cost caps in place to ensure that ratepayers are protected if renewable energy procurement costs are unreasonable.

Blaming RPS standards rather than a range of other factors for electricity price increases just shows ignorance of a complicated issue.

Fourth, Norquist’s most exaggerated claims blame significant job losses on renewable energy development. Leaving aside the fact that those claims are based on his inflated numbers for electricity rate increases, he ignores the many jobs that are created when renewable energy facilities are constructed locally, and when businesses grow to manufacture the equipment for those facilities, as well as plan, install, and operate them. A recent study from the Brookings Institution showed that clean energy jobs are among the fastest growing sectors in this depressed economy in the last decade.

That is why many state Governors—both Republican and Democratic—continue to support and defend policies to promote and implement renewable energy. Companies around the country employ many tens of thousands of people in good-paying jobs because of state RPS laws, clean energy incentives, and economic development support. Getting rid of those laws and incentives will result in thousands of employees losing jobs. What’s more, many of these employees work for companies, such as electrical contractors and construction firms, hit hard by the housing recession, and now stand to benefit from investment in an emerging energy sector.

Once again, real facts matter in this debate. A new, comprehensive census of Massachusetts’ clean energy industry found that more than 64,000 people—1.5% of the total workforce—are now employed in clean energy jobs. The number of these workers grew by 6.7% between 2010 and 2011, compared to 1% for the rest of the state’s economy, and it is expected to grow another 15% in the coming year. These are good paying jobs in many sectors of the economy.  They have resulted because of the state’s strong clean energy laws and programs.

Unfortunately, facts seem of little interest to Norquist. In the end, he makes his intentions clear. He just wants to stir up new Republican governors to end renewable energy laws for political reasons.

However, the states are smarter and more sophisticated than Washington insiders like Norquist when it comes to understanding the value of clean energy. Governors are directly accountable to their constituents for job creation and energy security, and they see how clean energy can help.

Take the case of Ohio. New Republican Governor Kasich first said he would roll back the state’s renewable energy laws in his campaign. That was before many segments of the business community expressed their strong support for those laws. Today, Ohio is the number two state in the nation in wind component and solar panel manufacturing. Thousands of Ohio residents are employed in solar and wind industries, in large part due to the state’s renewable requirements. Governor John Kasich now appears to support the state’s renewable laws, although he says he might include other technologies in the law’s scope to bring even more jobs to the sector. “They’re trying to get me to say we don’t need renewables here. Of course, we need renewables,” Kasich said.

Governor Kasich is not alone. Texas passed one of the most aggressive RPS laws in the country under Governor George W. Bush, creating a robust wind industry, and the law is still going strong under Governor Rick Perry. This past July, Republican Governor Scott Walker in Wisconsin signed a revised RPS law that adds new sources to the renewable mix. In Arizona, the state’s Supreme Court recently turned back legal challenges by a conservative think tank whose losing lawyer, Clint Bolick, oddly complained that the heavily Republican legislature “has been cowed by the solar industry into submission.” The law continues to be enforced by Republican Governor Jan Brewer.

In the end, Norquist is not only wrong on his facts, but late to the game. Many of these laws have been in place for a decade or more with job-creating results. These laws have become popular with new businesses and the public because they have worked.  Governors of both parties have listened to their in-state businesses and shown smart economic sense in the face of superficial repeal efforts.

Maybe before Norquist writes another article on states and clean energy, he should take this pledge: “When I write about clean energy, I promise to get my facts straight.”